Albania Wants Euro to Play Second Fiddle to the Lek

Albania’s central bank wants to curb the use of euros so that its monetary policy works better and to protect its banking system from exchange rate shocks, its governor told Reuters.

The national currency is the lek, but remittances from migrants, along with trade and banking ties to euro zone members Italy and Greece, and euro-using neighbours Kosovo and Montenegro, means Albanians use the euro widely.
Central Bank Governor Gent Sejko told Reuters in an interview there was no question of removing the euro from the economy of Albania, which is a candidate to join the European Union.
But the plan was to gradually boost the amount of leke in finance and the economy.
“First, we want to increase the flexibility and efficiency of our monetary policy in the local currency. Our stimulative monetary policy would be better transmitted if there were more transactions in the local currency,” Sejko said.
The bank also wanted to “preserve and protect financial stability since a high amount of lending in euros would expose the Albanian banking system to exchange rate risks”, he added.
A decade ago 80 percent of lending was in hard currency, mostly euros, and the rest in leke, but the ratio has since changed to 55 percent in euros and 45 percent in leke, helped by a rate cut to the record low of 1.25 percent.
That brought the relative borrowing and lending costs closer.
Deposits in euros accounted for 60 percent of savings. Sejko said the bank was encouraging commercial banks to keep deposits in leke and banks are now telling clients to convert loans in leke.
“We aim to increase the mass of the use and exposure of the local currency to a degree comparable to countries with a similar economy to ours in a gradual way,” Sejko said.
A three-year 330 million euro ($371.61 million) deal with the International Monetary Fund (IMF) helped better coordination of fiscal and monetary policy, brought gradual steady growth and better control of the public debt, Sejko said.
He said the new government that will be formed after June 25 election should focus on structural reforms.
Sejko noted his plan to reduce the amount of bad loans had managed to bring them down from 23.5 percent of total lending in 2013 to 16.6 percent in April 2017.
“This has come thanks to the writing off of lost loans after three years, their restructuring and the performance of existing clients,” he added. “This shows our policy is working.”
Having cut rates from 6.25 percent in end-2008 to 1.25 percent to stimulate investment and consumption, Sejko said the bank would maintain a stimulative policy until the end of 2017.
“If this stimulative monetary will continue or not will depend on the macroeconomic indicators in the future,” Sejko said, pointing to signals of a pickup of growth in the Eurozone, which influence Albania through trade and investment.
($1 = 0.8880 euros) (Reporting By Benet Koleka, Editing by Ivana Sekularac and Jeremy Gaunt)


Source: Reuters

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